NCR, Mumbai, Bengaluru, Chennai, Pune, Hyderabad, Kolkata, Ahmedabad
Sanjay Dutt further added, “Given the current subdued economic conditions, most occupiers are cautious and have been concentrating on how to leverage current office supply to their advantage and reduce real estate cost from medium to long term perspective whilesimultaneously focusing on increasing the efficiency of their existing office spaces, alternate workplace strategy with remote or flexible work stations or hours.”
IT/ BPO driven markets of Chennai and Hyderabad registered a decline in leasing activities in Q1 2013 over the same period last year due to the cautious approach. However, it was striking to note that Bengaluru, which has traditionally contributed in large quantum to the total office space leasing, saw a decline of 83% in Q1 2013 over same time last year in the wake of lower quantum of space take-ups. Companies, primarily from IT/ITeS sector, vacated office spaces in locations of CBD and Suburban regions to relocate and consolidate in peripheral areas due to availability of cost effective options. Even while the actual number of deals in Q1 2013 were more in comparison to that in Q1 2012, average deal size was significantly lower at approximately 25,000 square feet (sf), with very few deals above 100,000 sf.
Sanjay Dutt additionally said, “Companies that relocated, restricted space uptake to either the same size as they vacated or only marginally more than the last space occupied, thus contributing to net absorption in limited amount. Many corporate houses expressed interest in leasing larger space, but have postponed their decision for the later part of the year. Thus going forward, the transaction activities are expected to pick up with some bigger requirements anticipated to get finalized.”
The developers on the other hand are looking for different strategies to promote lease and sale in a highly competitive environment. Some of the focus areas are branded office developments, while some are going back to strata sale and smaller units to attract investors or small and medium companies.
The overall net absorption in Bengaluru was recorded at 234,570 square feet (sf), denoting a drop of 83% over Q1. The IT/BPO sector continued to dominate the transaction activity followed by Engineering and Consulting. Bengaluru recorded a supply of approximately 1.6 msf of commercial office space of which 45% was in SEZs. Supply increased by approximately 50% over the same quarter last year demonstrating confidence of the developers in the fundamentals of the IT& ITES sector and local economy. The overall vacancy was recorded at 14.7% up by at the end of Q1 2013. With the exception of CBD / Off CBD locations that recorded a 5% drop, rental values remained in similar ranges compared to last quarter. With an estimated supply of around 5 msf in the next quarter, vacancy levels are anticipated to see a rise. Going forward, rentals might continue to remain stable. However, the overall leasing terms are expected to turn in favor of the occupiers.
The overall leasing activity in the first quarter remained slow in the wake of cautious expansion plan of occupiers. A few companies relocating to other micro markets and overall net absorption was recorded at only 131,412 sf, a drop of around 80% from Q1 2012. IT/BPO sector continued to be the largest contributor in absorption followed by the BFSI sector. The first quarter witnessed a total supply of approximately 950,000 sf, registering a decline of 61% over 1Q 2012. The overall vacancy level witnessed marginal increase of 0.3% and was 15.9% from the previous quarter. The rental values across the city exhibited a stable trend. However, weighted average rentals in the Peripheral-GST micro market declined as leasing activity was slow because occupiers preferred to be located in the Suburban-Guindy. Consequently, Suburban-Guindy registered a rise in weighted average rentals with fresh supply entering the market at higher rentals. Slowdown in leasing activity is expected to continue in the second quarter due to prevailing cautious expansion sentiments. Going forward, rentals are expected to register a stable trend.
The commercial office market of Hyderabad witnessed a slowdown in leasing activity in Q1 2013 due to the overall weak economic conditions and cautious approach of major IT companies in the city in terms of their expansion plans. The net absorption was recorded at approximately 450,000 sf in Q1 2013, nearly 29% lower than in Q1 2012. Majority of the net absorption was witnessed in the peripheral location of Pocharam (40%) followed by suburban locations of Madhapur and Gachibowli (28%). Companies preferred taking up small spaces as many small size deals in the range of 5,000 – 15,000 sf were executed in the suburban micro market during the quarter. There were no pre-commitments recorded due to the cautious approach of companies. Construction delays in some projects led to a very low supply in this quarter with only one building admeasuring 18,000 sf becoming available as against 490,000 sf in Q1 2012. The office market continued to witness shortage of Grade A space as there was no Grade A supply for the third consecutive quarter. Overall vacancy reduced from 20% to 19% over the quarter due to the lack of significant supply and moderate transaction activity. The rental values remained stable across all the micro markets compared to the last quarter. However, there was a marginal appreciation in rental values in the range of 2-7% in most of the micro markets in comparison to Q1 2012. The leasing activity in Hyderabad is likely to gain momentum in the next 6-9 months with improvement in economic conditions and market sentiments.
Mumbai witnessed a net absorption of 809,543 square feet (sf), registering a decline of 37.5% compared to the first quarter of 2012. The market is largely drive by the BFSI sector contributing 21% to overall absorption followed by the IT/BPO (18%) and FMCG (15%). Absorption during the quarter was concentrated in suburban and peripheral micro-markets of Andheri-Kurla (18%), Thane-Belapur Road (17%), Powai (15%) and the SBD (15%). Companies in the pharmaceutical and chemical sectors aiming to expand and consolidate operations have pre-committed space of around 383,000 sf in developments nearing completion. The first quarter witnessed a Grade A supply of 1.61 million square feet (msf) registering an increase of 15.3% compared to the first quarter of 2012. With a majority of supply being in the form of IT developments, the share of commercial space in overall supply continued to remain low. The high supply has resulted in vacancy levels increasing to 21.9% for Grade A developments. However, rentals continued to remain stable on the back of steady transaction activity and healthy enquiries. Absorption for the upcoming quarter is expected to remain moderate and as a result rental values are likely to be under pressure with rise in availabilities. Attractive rental and capital values continue to attract lot of corporate and investors to purchase properties in Mumbai.
National Capital Region
Due to industry-wide conservative sentiments, the leasing activity remained subdued (use another word) during this quarter. The total net absorption was noted at 774,957 square feet (sf), at a similar level to the corresponding quarter last year. This was mainly due to instances of relocation and consolidation, which accounted for 20% of the total net absorption. IT/ITeS continued to be the major contributor in absorption. The first quarter of the year registered a total supply of 1.9 million square feet (msf), a year-on-year increase of approximately 23%.. There was no supply in SEZs during the quarter. Overall Grade A vacancy rates witnessed a year-on-year increase of 5% due to the addition of new supply. The demand for office space is expected to remain moderate in the next quarter due to cautious expansion plans by occupiers. Approximately 6.3 msf of Grade A supply is expected in the second quarter of 2013, of which 3.7 msf is expected in Gurgaon and 1.8 msf is expected in Noida. As a result, the vacancy levels in Gurgaon and Noida micro market are expected to increase and put pressure on the rental values. Investors see this upside as an opportunity and therefore are looking to invest in ready vacant or leased office properties.
During the first quarter of 2013, Pune witnessed supply of 637,000 sf of which 94% was in IT SEZ developments in Hinjewadi (Rajiv Gandhi Infotech Park - Peripheral I). In comparison to Q1 2012, net absorption increased by over 30% as a number of deals spilled over from last year and were closed in the beginning of 2013.The city saw the highest net absorption of over 840,000 sf. Pre-commitments during the quarter were noted at 132,000 sf mainly driven by Pharmaceutical & Healthcare, BFSI and Consulting sectors. Space take-up by many small-sized occupiers, primarily in the Grade B developments, drove the net absorption during the quarter. Whilst the weighted average rentals in the sub-markets of Suburban – West, Extended Suburban and Off-CBD – II, witnessed a quarterly increase in the range of 5-8%, the CBD recorded a marginal pressure in the rentals owing to the persistent high vacancy rate. During the next quarter, nearly 3.12 msf of supply is likely to become operational, thereby increasing the city vacancy rate even further. Despite the upcoming supply, rentals are likely to remain in range-bound. Owing to increase in number of consolidation and expansion enquiries, incremental increase in absorption is likely.
Ahmedabad witnessed net absorption of 189,555 square feet (sf) during the first quarter of 2013, an increase of nearly 90% compared to the first quarter of 2012. Some companies expanded and relocated their operations to better quality spaces offering attractive rentals. Absorption during the quarter was evenly distributed in Praladnagar and S.G. Highway. Pharmaceutical companies had a share of close to 26% in overall absorption followed by trading companies. Supply of Grade A space during the quarter stood at 866,000 sf, a substantial increase compared to the first quarter of 2012, which had no supply. Additionally, 80,000 sf of Grade B space also became operational at Prahladnagar. The first commercial tower at GIFT city admeasuring 700,000 sf became operational during the quarter. The large quantum of Grade A supply has resulted in vacancy levels increasing to 34.5%. This has resulted in rental values in the key micro-markets of S.G. Highway and Prahladnagar declining by 6% and 3% respectively.
Kolkata saw net absorption of approximately173.000 sf which is around 40% lower compared to last year same quarter. On the other hand, supply increased by 25% and was noted at approximately 720,000 sf, majorly concentrated at Rajarhat and Salt Lake. As a result, overall vacancy level increased to 22.8% at the end of first quarter. Rentals across most micro markets remained stable, however Rashbehari Connector witnessed a significant increase on account of the infusion of new supply at higher rents during the quarter. In the coming quarters the rentals are expected to increase further in CBD and select locations in SBD such as Rashbehari Connector due to demand for quality space. On the other hand, the peripheral locations such as Salt lake and Rajarhat may witness stability in rentals or may see a slight correction due to infusion of new supply in the coming quarters.